Putin Warns Europe "No Alternative... Will Cut Gas Supplies"

European partners have left Russia with "no alternative" but to halt supplies of gas to Ukraine and Europe, according to a letter from Russian president Putin to European leaders.

*EUROPEAN PARTNERS LEAVE RUSSIA 'NO ALTERNATIVE,' PUTIN SAYS

*RUSSIA TO HALT UKRAINE GAS IF PAYMENT VIOLATIONS GO ON: PUTIN

*PUTIN: RUSSIA UKRAINE GAS SUBSIDY WORTH $35.4B IN PAST 4 YEARS

The remarks, as Reuters reports, were the strongest sign yet that Russia could curtail supplies of gas to (and through) Ukraine affecting supplies of gas to Europe (as they fear Ukraine will siphon off Russian gas meant for Europe). Russia is already reducing its delivery through Ukraine but it stil represents 39% of Europe's demand. Gazprom has also been forced to move to pre-payment terms on any future deliveries (there's your IMF bailout).

President Vladimir Putin has told European leaders a dispute over Ukraine's gas debt to Russia could affect supplies of Russian gas to Europe and proposed urgent discussions on the matter, his spokesman said on Thursday.

The remarks were the strongest sign yet that Russia could curtail supplies of gas to Ukraine, which could increase tension between Moscow and Kiev and aggravate the worst crisis in East-West ties since the Cold War.

"The situation is urgent," Putin's spokesman, Dmitry Peskov, said after Putin sent a letter expressing deep concern about Ukraine's $2.2 billion gas debt and warning of a possible impact on the transit of Russian gas to the European Union.

In the letter, Putin proposed "mechanisms of dialogue for urgent discussions of the situation that has developed," Peskov said. He did not give any details about the proposal or say which leaders were addressed.

Putin also added that Ukraine is in trouble...

*PUTIN SAYS UKRAINE IS HEADING TOWARD DEFAULT

*PUTIN URGES TALKS WITH EU MINISTERS ON UKRAINE GAS DEBT

*PUTIN: RUSSIA UKRAINE SUBSIDY INCLUDES $18.4B TAKE-OR-PAY FINE

*GAZPROM FORCED TO MOVE UKRAINE TO PREPAYMENT DUE TO DEBT: PUTIN

Reuters further adds that:

IN LETTER SEEN BY REUTERS, PUTIN SAYS THERE ARE RISKS UKRAINE WILL SIPHON OFF RUSSIAN GAS DESTINED FOR EUROPE

PUTIN SAYS IT IS NECESSARY TO PUMP 11.5 BCM OF GAS INTO UKRAINE GAS STORAGES TO SECURE UNINTERRUPTED RUSSIAN GAS TRANSIT TO EUROPE

We are sure any new sanctions that Obama and his motley crew are coming up with have all of this in mind...

In sum, Russia is saying that Ukraine must build its own gas reserves to guarantee that there is enough for Europe, and Ukraine is saying no. Russia is thus implying that European gas supplies are at risk because Ukraine will take the gas supposedly traveling to Europe.

The math, as performed by Gazprom, via Bloomberg:

Ukraine needs ~18bcm of natgas in underground storage facilities for future winter consumption, to ensure uninterrupted transit of Russian fuel to Europe, Gazprom Deputy CEO Vitaliy Markelov says at govt meeting outside Moscow. Ukraine has 6.5bcm in storage now, ~0.65bcm are in Crimeanunderground storage facilities. Markelov adds that 11.5bcm needed before winter to cost $4b-$5b, if history is any example gas in storage before last winter was 19bcm, and currently has 7.2bcm in underground storage, according to Naftogaz Ukrainy.

So to paraphrase: Gazprom is saying it demands that Ukraine build up its gas holdings to assured it won't syphon off gas with a European destination, gas which will cost Ukraine up to $5 billion, money which Russia is now demand be paid up front. Or else Europe gets it.

Ukraine’s economy in the past several months has been plummeting. Its industrial and construction sectors have also been declining sharply. Its budget deficit is mounting. The condition of its currency system is becoming more and more deplorable. The negative trade balance is accompanied by the flight of capital from the country. Ukraine’s economy is steadfastly heading towards a default, a halt in production and skyrocketing unemployment.

Russia and the EU member states are Ukraine’s major trading partners. Proceeding from this, at the Russia-EU Summit at the end of January, we came to an agreement with our European partners to hold consultations on the subject of developing Ukraine’s economy, bearing in mind the interests of Ukraine and our countries while forming integration alliances with Ukraine’s participation. However, all attempts on Russia’s part to begin real consultations failed to produce any results.

Instead of consultations, we hear appeals to lower contractual prices on Russian natural gas – prices which are allegedly of a “political” nature. One gets the impression that the European partners want to unilaterally blame Russia for the consequences of Ukraine’s economic crisis.

Right from day one of Ukraine’s existence as an independent state, Russia has supported the stability of the Ukrainian economy by supplying it with natural gas at cut-rate prices. In January 2009, with the participation of the then-premier Yulia Tymoshenko, a purchase-and-sale contract on supplying natural gas for the period of 2009-2019 was signed. The contract regulated questions concerning the delivery of and payment for the product, and it also provided guarantees for its uninterrupted transit through the territory of Ukraine. What is more, Russia has been fulfilling the contract according to the letter and spirit of the document. Incidentally, Ukrainian Minister of Fuel and Energy at that time was Yuriy Prodan, who today holds a similar post in Kiev’s government.

The total volume of natural gas delivered to Ukraine, as stipulated in the contract during the period of 2009-2014 (first quarter), stands at 147.2 billion cubic meters. Here, I would like to emphasize that the price formula that had been set down in the contract had NOT been altered since that moment. And Ukraine, right up till August 2013, made regular payments for the natural gas in accordance with that formula.

However, the fact that after signing that contract, Russia granted Ukraine a whole string of unprecedented privileges and discounts on the price of natural gas, is quite another matter. This applies to the discount stemming from the 2010 Kharkiv Agreement, which was provided as advance payment for the future lease payments for the presence of the (Russian) Black Sea Fleet after 2017. This also refers to discounts on the prices for natural gas purchased by Ukraine’s chemical companies. This also concerns the discount granted in December 2013 for the duration of three months due to the critical state of Ukraine’s economy. Beginning with 2009, the total sum of these discounts stands at 17 billion US dollars. To this, we should add another 18.4 billion US dollars incurred by the Ukrainian side as a minimal take-or-pay fine.

In this manner, during the past four years, Russia has been subsidizing Ukraine’s economy by offering slashed natural gas prices worth 35.4 billion US dollars. In addition, in December 2013, Russia granted Ukraine a loan of 3 billion US dollars. These very significant sums were directed towards maintaining the stability and creditability of the Ukrainian economy and preservation of jobs. No other country provided such support except Russia.

What about the European partners? Instead of offering Ukraine real support, there is talk about a declaration of intent. There are only promises that are not backed by any real actions. The European Union is using Ukraine’s economy as a source of raw foodstuffs, metal and mineral resources, and at the same time, as a market for selling its highly-processed ready-made commodities (machine engineering and chemicals), thereby creating a deficit in Ukraine’s trade balance amounting to more than 10 billion US dollars. This comes to almost two-thirds of Ukraine’s overall deficit for 2013.

To a large extent, the crisis in Ukraine’s economy has been precipitated by the unbalanced trade with the EU member states, and this, in turn has had a sharply negative impact on Ukraine’s fulfillment of its contractual obligations to pay for deliveries of natural gas supplied by Russia. Gazprom neither has intentions except for those stipulated in the 2009 contract nor plans to set any additional conditions. This also concerns the contractual price for natural gas, which is calculated in strict accordance with the agreed formula. However, Russia cannot and should not unilaterally bear the burden of supporting Ukraine’s economy by way of providing discounts and forgiving debts, and in fact, using these subsidies to cover Ukraine’s deficit in its trade with the EU member states.

The debt of NAK Naftogaz Ukraine for delivered gas has been growing monthly this year. In November-December 2013 this debt stood at 1.451,5 billion US dollars; in February 2014 it increased by a further 260.3 million and in March by another 526.1 million US dollars. Here I would like to draw your attention to the fact that in March there was still a discount price applied, i.e., 268.5 US dollars per 1,000 cubic meters of gas. And even at that price, Ukraine did not pay a single dollar.

In such conditions, in accordance with Articles 5.15, 5.8 and 5.3 of the contract, Gazprom is compelled to switch over to advance payment for gas delivery, and in the event of further violation of the conditions of payment, will completely or partially cease gas deliveries. In other words, only the volume of natural gas will be delivered to Ukraine as was paid for one month in advance of delivery.

Undoubtedly, this is an extreme measure. We fully realize that this increases the risk of siphoning off natural gas passing through Ukraine’s territory and heading to European consumers. We also realize that this may make it difficult for Ukraine to accumulate sufficient gas reserves for use in the autumn and winter period. In order to guarantee uninterrupted transit, it will be necessary, in the nearest future, to supply 11.5 billion cubic meters of gas that will be pumped into Ukraine’s underground storage facilities, and this will require a payment of about 5 billion US dollars.

However, the fact that our European partners have unilaterally withdrawn from the concerted efforts to resolve the Ukrainian crisis, and even from holding consultations with the Russian side, leaves Russia no alternative.

There can be only one way out of the situation that has developed. We believe it is vital to hold, without delay, consultations at the level of ministers of economics, finances and energy in order to work out concerted actions to stabilize Ukraine’s economy and to ensure delivery and transit of Russian natural gas in accordance with the terms and conditions set down in the contract. We must lose no time in beginning to coordinate concrete steps. It is towards this end that we appeal to our European partners.

It goes without saying that Russia is prepared to participate in the effort to stabilize and restore Ukraine’s economy. However, not in a unilateral way, but on equal conditions with our European partners. It is also essential to take into account the actual investments, contributions and expenditures that Russia has shouldered by itself alone for such a long time in supporting Ukraine. As we see it, only such an approach would be fair and balanced, and only such an approach can lead to success.

The Ukrainians are guaranteed to siphon off gas and then blame the Russians. They did it in 2006 and 2009. This is why Putin needs Southstream to be completed, to reduce dependence on the Kiev Kriminals for gas transit.

Mostly Putin just needs the Europeans to wake up to themselves and see where this is going, and tell Washington to piss off from EU foreign policy affairs, then the EU itself will encourage Ukraine to be nice to Russia and behave itself, and pay its gas bill, ... or else both EU and the bear will beat them up.

Unfortunately the EU will be very slow waking-up to itself, as to where its interests really lay, over the next 25 years.

What the EU doesn't realize is the ones who will actually pay for this are themselves because the US will simply print whatever this costs, which shifts the real costs to debt holders and countries trapped in the petrodollar system. EU countries own a lot of US debt and are forced to by oil with dollars, this means that if the US prints to pay for something, its really the EU who pays.

The key is to not have dollar exposure, if you aren't invested in dollars then the US printing to pay for nonsense only indirectly effects you.

He doesn't just have an opinion problem. He has facts wrong over and over and over again -- like so:

-- Those gas pipelines are of enormous value...anything happens to those things and all of Europe has an instant energy crisis. --

No, it doesn't. The UK doesn't use any Russian gas. Germany uses Russain gas from the Nordstream pipeline that doesn't even pass through Ukraine. Norway has its own. The Dutch and Danes have their own.

The tables have turned. First time I was in Russia was in the waning days of the USSR. You could buy tins of Russian buluga caviar from waiters and other folks for $ 5 US (then considered primo hard currency). In the airport stores they were going for 10x that.

When this dollar fiat fraud finally shakes out, look out for the impact on prices in the US for imported goods.

The ULTIMATE irony will ne when Western scientists and engineers (the smart guys with a useful skillset) start defecting TO Russia, to have jobs and freedoms.

They can keep their other "intellectuals" and army of "Service Providers": lawyers, accountants, PR people, pop-psychologists, hermaphrodites, pedophiles, troglodytes, political advisers and fluffers, bankers...

Wakeup Euro heads. Join the Anti-Bolshevik Federation, purge the globe of the scurge of the New Bolsheviks, join the human race and send the alien khazars to hell. The world economy will grow infinitely.

This is pure bluff for the Russian voters. Has Chavez or Maduro ever stop supplying oil? Big NO! While would Putin do the same and risk lower revenues? This is all pro-russian propaganda and I am surprised how easily it is accepted by the ZH readership....

The Russians saw this coming a mile away, with Ukraine's ability to actually pay of the energy that they got highly in doubt. Europe, which is pretending that they're going to help bail out Ukraine, is also broke. For a better understanding of why Russia is questioning the economic capabilities of Europe:

I have a baaad feelings about Ukraine and the next 48 hours....Here in Europe we almost had a fist fight between the Russian delegation and other delegates...These things always happen right at the start of weekend (well DUH..), so stay tuned...

Pooteen has examined the field, long n hard. Hell, I'd not be surprised if he did not gain full access to Snowden's files. Anyway, it does not take a genius to figure out his potential adversaries are playing w/ a weak hand, and .... this might even go a long way in further dividing NATO/G7.

As I posted on another thread, the west side of the former Iron Curtain countries - x E Germany - should have formed their own neutral "sub-block", even if with a west bias, just to play it safe, and act as a buffer. I think they could have gained from both sides. OTOH, after having been under russian boots for better part of 45-50 years, they were all eager to bolt, and turn on the former master, just as are many of America's "allays".

Obama & his gang, are not a match for Putin. Obama is a flame thrower, not a problem solver. Destruction is his forte, not, mediation and moderation. The state of this nation will vouch for that.

"Obama & his gang, are not a match for Putin. Obama is a flame thrower, not a problem solver."

This isn't a wrestling match.

Ukraine and Eurupe are on Russia's borders. Russia has actual exportable resources. And, they're tired of the West's continual attempts at destabilizing Russia. Blowback is not a mystery. And, well, this is a shift away from customers who are becoming more and more unable to pay. Business and political reasons. Seems plenty rational.

"Destruction is his forte, not, mediation and moderation. The state of this nation will vouch for that."

What is there to mediate/moderate? That is, what position is there (regardless of who could be sitting in the POTUS chair)?

"As I posted on another thread, the west side of the former Iron Curtain countries - x E Germany - should have formed their own neutral "sub-block", even if with a west bias, just to play it safe, and act as a buffer."

How "safe" can you expect to be when you don't have resources? And they'd export to Europe because Europe is such a strong market?

Yeah, after all all that Russia gets from Europe in exchange for raw materials, gas & oil is services, machinery and transport equipment, chemicals, medecines, agricultural products, and 75% of their foreign investment.

But hey, they invented Tetris, Vodca & Balalaikas, so i guess that evens things out.

I am uncertain if you are looking for an argument, or you just missed the points of my comments?

"This isn't a wrestling match."

Who stated so, and how did you arrive at that brilliant conclussion?

"What is there to mediate/moderate? That is, what position is there (regardless of who could be sitting in the POTUS chair)?"

Among other things, non-complicance with a contract which Russia signed back in '94, as well as, an invasion of a sovereign nation .... unless you buy into those non-military military who moved into Crimea, in which case, you clearly are confusing this with a WWE - or whatever the hell it is called today - match.

"How "safe" can you expect to be when you don't have resources? And they'd export to Europe because Europe is such a strong market?"

You should do your homework, before attempting to engage in a pissing match. I'd love to spend more time but I must split. Realy do some studying of that area.

Like I said, addiction is the problem of the "individual." No one put a gun to the heads of the Ukrainians and told them they had to use/buy NG.

Pretty certain that we'll hear the story line that the benvolent West has been looking to create alternate gas flows for this very reason of Russia holding other countries hostage. Never mind that the West (US) has esssentially been provoking it all along by way of trying to destabilize Russia.

It's all one big cluster-fuck. And it's not going to get better.

The Germans will make high-quality widgets for the rich in Russia and China in exchange for energy. Rest of Europe will freeze. And none of this has anything to do with my personal preference.

My point is that the only thing Rand has in common with his father is their last name. I've seen his name thrown about on ZH as a possibility for Prez in 2016. He would get most if not all of all the independent vote by riding on his father's coattails, but he would be more of the same. If not worse, he takes arrogance and smugness to a whole new level. It's all very calculated, don't think this fact is lost on Republican party "leadership".

I'm of the opinion that cleaning house is in order....that would include Rand, but I have more respect for him in the senate than just about every other douche in there.

That being said the US's duplicitous "AID" package was nothing but a payoff to Russia. Had that gone through Ukraine would have paid its debt and this stupid financial war could go one for a few more years for all we know.

My rant about Rand was somewhat off-topic, just wanted to point out that he is yet another stooge trying to keep in his party's good graces for a shot at the big prize. The Republican decision to block the package is all about politics and undermining Obama to make him look weak(er). Just another example of gridlock and disconnect from the reality of anything beyond the Beltway circle jerk.

The ignorant children of Congress will still be arguing about parliamentary procedure as the mushroom clouds appear outside their window. That's the only sure way to clean house.

What's the problem with his approach? He's pumping nat gas but not getting paid! Shut it off, you maintain your reserves and aren't giving them away for FREE and as it is with gas stations, SEE the cashier before you can PUMP...Putin is no chump unlike our Barry and Putin's babes don't look like a Wookie....

i'm not so sure of the bluff, because if he does turn it off, they will pay pretty fast, and then it flows again. what other option does euro(germnay) have? unless this escalates into a hot conflict by none other than mercenaries doing the work of their employer...

I think Germany is tired of the headaches from the EU and US, I would look for German and Russian pragmatism to find common ground very soon. They would be a premium addition to the BRICS.

I also think that the US dragging their heels on repatriating German gold was a desperation move to keep Germany under the US thumb. Germany has to know by now that they will never get it back if the US even has it.

Germany is literally fighting for their survival but their oppressor is the US, not Russia.

And good point about the NSA, getting caught spying on your allies is the death knell of trust. Americans living under their propaganda biodome have no idea how disgusted US allies are about the NSA. I think that was the final straw for Germany, and the US stirring up Ukraine is the final final straw.

Well, it IS a global market. And, Germany ought to be concerned with a ramped up number of cold, starving masses around its borders (as it does business with the country that turned off the gas to those cold and starving masses).

Ha-Ha. So, Putin is proposing that Europe/IMF send in truckloads of money to Ukraine to pay off its debts to Russia, else it only gets more gas via pre-payment, but also sends in people to manage the flow of gas thru Ukraine intended for Europe in case Ukraine pilfers it on its way thru their country (which of course it would do).

That ought to hit the EU & IMF right where it hurts: in the printing press.

it sure as hell won't be USD. Will NG be the 1st commodity to be officially priced in yuan or even: Euro, USD and Yuan?! After all, EU was formed to counter US' (former) strength.

From the looks of things, Globalization is turning out to have far different effects than those counted on ... at least openly and by some. The major proponent, forgot that while the US is a young country, all others have deeeeeep nationalistic roots, which are now surfacing, more than ever. Throw in religion, over-population, shortages, etc etc and you have one explosive mix.

The US could not have been in any worse of a leadership position .... as well as financal and economic.

I think most in here oversee the burning factor: Russia never said they wanted those payments in dollars, remind you. There's a bigger plan behind this move. The chess guy is moving his Bishop and he's going for the heart. Cool down now Vlad, we see you.

So it seems that Silk Road into Duisburg idea is less of an offer, more of a demand. Europe will turn pro-Russia and the US in opposition will fall. Necessity will win out. Can't see it happening any other way really.

Tony, it's just the Jewish history in Europe, in the midst of repeating itself right in front of your eyes...we go waaaay back, like medieval way back. They "rent" a place for a while, and move on when they screw up the joint and their lease contract is revoked...

In the middle of winter what would you prefer to have ? A fist full of Euro's or US$s, or a bountiful supply of nat gas at a reasonable price. Irony is that
Western nations are willing to print for Banksters, Polititians and Empire Preservation, but reluctant to print for Russian nat gas. In essence, Russia is demanding equal rights and access to Fiat currency in exchange for energy-----which they will succeed in obtaining.